01/20/2024 – 9:15
The entry of low-cost airlines, those that seek to offer cheaper flights while minimizing operational costs, is much further from the dreams of those who want to fly for less in Brazil. Despite a rhetorical offensive from managers in recent years, the State has still not managed to make the country attractive for the business model, experts say.
Improving the current scenario involves defining baggage charges and consolidating initiatives to reduce the judicialization that affects the sector. However, even if these demands are met, there is a lack of more solid signs of enthusiasm from foreign companies. A possible explanation for this may lie in the third obstacle to this business model: the sector's labor legislation.
Low cost operations are seen by the government as one of the ways to reduce air tickets. Data from the National Civil Aviation Agency (Anac) show that the average value of tickets grew 32% between 2019 and the first half of 2023. When talking about initiatives to tackle the phenomenon, the Minister of Ports and Airports, Silvio Costa Filho, told the press last month that there are efforts to increase low-cost flight operations.
For lawyer Fabio Falkenburger, from Machado Meyer, there have been important regulatory advances in recent years to open the airline market, but there are still obstacles. “The current bottleneck is the cost of operating in Brazil”, he assesses. “It is very difficult for a company to enter offering very low rates, because it would be difficult for it to make a profit with the labor and legal costs that it would have to bear”, explains the expert.
Business interest
There are currently low cost companies operating in Brazil, but with headquarters in other countries and only on international routes. This is the case of Chilean JetSmart and Sky and Argentine Flybondi.
According to a source close to the government, the three companies are among those that show the most interest in entering the Brazilian domestic market, but they still see obstacles. “Brazil has an expanding airline market and this attracts the attention of companies”, says the source. “While in Chile the aviation penetration rate is 1.2 trips per inhabitant, in Brazil it is 0.5”, he argues.
Adjusted regulation
Anac's CEO, Tiago Sousa Pereira, considers that, from a regulatory point of view, the State is already doing its part compared to what is seen around the world. The director highlights that, among the advances in recent years, there has been a reduction in certification time, in addition to opening up to airlines with a majority of foreign capital. For him, currently, the ball in the game lies much more with Congress and the Judiciary than with the regulator.
Pereira's assessment is that, in fact, the impasses are concentrated in baggage collection and judicialization. However, he says that, on these issues, it remains for the government to “sit down with the Judiciary” and with Congress to raise awareness. “We are already doing this. We have, for example, agreements to try to raise awareness in the Judiciary to direct passengers with complaints to be resolved by Consumidor.Gov”, he states.
Judicialization
The main point that could move the market are changes to reduce the high volume of judicialization that affects the airline sector. The costs of legal proceedings for complaints from customers who suffered mainly due to flight delays weigh significantly on domestic airlines. According to Anac, compensation for convictions or extrajudicial agreements are among the ten most representative components in the cost of airline tickets, representing 1.94% of the composition of the ticket price.
According to a study carried out by the International Air Transport Association (Iata), the chance of an airline being sued in Brazil is 5,836 times greater than in the United States. Minister Silvio Costa Filho himself, as soon as he took office, defined the phenomenon as “the judicialization industry”. This is because there are companies on the market that specialize in monitoring flight delays to offer the opening of processes for affected passengers.
“There are international treaties that limit compensation to material damages, but the Brazilian Judiciary also applies the Consumer Code and also includes moral damages, contrary to international standards, and this consumes a lot of money from companies”, explains lawyer Fabio Falkenburger.
In an interview published in October, the representative of Flybondi, an Argentine low-cost airline that already operates flights from its country of origin to Brazil, pointed out that domestic operations in Brazilian territory are attractive, but that there are “strong entry barriers”, citing judicialization as an example. “We can only plan a domestic entry into Brazil if there is some flexibility and an improvement in legal understanding”, said the company's CEO, Mauricio Sana.
The topic of judicialization is not a simple, short-term solution, says Falkenburger. An example is that law no. 14034 already includes that moral damage must be effectively proven, but there are still decisions that consider moral damage presumed.
Baggage collection
In June 2022, former president Jair Bolsonaro (PL) vetoed the return of free baggage check-in on flights, by sanctioning Law 14,368, which relaxes rules in the airline sector. However, 19 months after the veto, the decision has not yet been approved by Congress, leaving different possibilities open.
Low-cost airlines are able to compensate for lower ticket costs with additional charges, whether through baggage check-in or selling other amenities during flights. According to Iata data, ancillary revenues, including baggage fees, represented up to 20% of these companies' revenue.
“Indecision over baggage charges impacts not only airlines’ business strategies, but also consumer satisfaction and confidence. For low cost companies, clarity on this issue is vital to maintain competitive advantage and profitability”, assesses lawyer Jean Paolo Simei e Silva, partner at Fonseca Brasil Advogados.
Lawyer Victor Hanna, partner at Goulart Penteado Advogados, says that the lack of definition, in addition to removing competition, places the country as an international pariah in the market. “This violates international agreements, especially the Open Skies Treaties”, says Victor Hanna.
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